Oct. 29, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 RE: Safeguarding Advisory Client Assets (File No. 4-784) Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. 4-784) issued by the Securities and Exchange Commission (SEC). I appreciate the Commission's efforts to enhance investor protections and address gaps in the custody rule. However, there are certain areas of concern and issues that I would like to raise in relation to the proposed rule. One key concern is the lack of clarity on the definition of digital assets. The proposal does not provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. Given that digital assets, such as cryptocurrencies, are built on blockchain technology and transforming the finance industry, it is vital to have a precise and comprehensive definition to ensure effective regulation and investor protection. Moreover, the use of digital assets in investment advisory services brings about unique challenges that must be adequately addressed in the proposed rule. These challenges include issues related to custody, valuation, and the potential for fraud or cybersecurity breaches. While the proposal acknowledges the application of the rule to crypto assets, it falls short in providing specific guidance on how investment advisers can effectively safeguard these assets. Clear guidelines and best practices are necessary to ensure the secure handling of digital assets and to mitigate the risks associated with their custody and management. Additionally, the proposed rule outlines requirements for maintaining assets that cannot be maintained with a qualified custodian, such as digital assets. However, the proposal lacks specific details on the enhanced recordkeeping, separation of duties, and regular reviews that would be necessary to safeguard these assets. It is crucial to provide clear instructions on how advisers can fulfill their responsibilities and effectively protect client assets, particularly in the context of digital assets. Furthermore, the proposed changes to the surprise examination requirement are commendable in promoting the safeguarding of client assets. However, exceptions for advisers with discretionary authority over client assets and those with custody solely due to a standing letter of authorization (SLOA) may create potential loopholes that could be exploited. It is essential to carefully consider the potential risks and challenges associated with these exceptions to ensure the integrity of the proposed rule and the protection of client assets. Lastly, I would like to applaud the SEC's commitment to economic analysis and the consideration of costs and benefits in the proposed rule. However, it is important to note that accurately estimating the economic effects of the proposed rule might prove challenging due to the varying practices among investment advisers. Striking the right balance between investor protections and compliance costs is crucial to maintain a fair and efficient market. I appreciate the SEC's call for comments on reasonable alternatives to the proposed rule and factors that may have been overlooked. In conclusion, while I support the SEC's objective of enhancing investor protections and addressing gaps in the custody rule through the proposed rule, I encourage the Commission to consider the issues and concerns raised regarding the lack of clarity on the definition of digital assets, the challenges associated with safeguarding digital assets, and the exceptions to the surprise examination requirement. I believe that by addressing these concerns, the proposed rule can become more effective in providing comprehensive investor protections in an evolving digital landscape. Thank you for considering my comments. I applaud the SEC's commitment to fostering transparency and accountability in the advisory industry and appreciate the opportunity to express my views on the proposed rule. Sincerely, ?ukasz